Stock Market Outlook for Mon Jan 31 2022 – Staying Cautious – Take Profits – Use Stop-Losses

Friday saw the best rally of 2022 across all 3 indexes as the oversold conditions finally resulted in a large bounce back. On Friday the closing price for S&P 500 Index was $4431.85. It rose 82 points for a gain of 1.88%. Over the last 30 days the lowest close was $4349.93 on January 26th. The 52 week high was $4818.62 on January 4th (2022). The S&P ended Friday 8.03% below its all-time high and still in correction territory.

The day ended with the NASDAQ at 13352.78 with huge gains in a number of stocks including Apple and Microsoft, leading the index higher. On Friday the gain was 418 points for the NASDAQ for a rise of 3.13%. Over the last 30 days the lowest close was $13352.78 on January 27th. The 52 week high was $16212.23 on November 22nd (2021). The NASDAQ is still trading 15.06% below that high and in deep correction territory.

For Monday the question is was Friday just a one day bounce or have the lows been seen for now and more upside lies ahead.

Let’s review Friday’s closing technical readings to see what to expect to start the week.

Stock Market Outlook Chart Comments At The Close on Fri Jan 28 2022 

The closing candlestick on Friday is bullish and closed above the 200 day and stay all day inside the Lower Bollinger Band. Both are bullish signals but also advise that some selling will appear on Monday or Tuesday and investors should be prepared for the index to retest the 200 day moving average at the least.

The Upper Bollinger Band is turning lower which is bearish. The Lower Bollinger Band is starting to turn sideways which is still bearish but a good sign to start the week.

The 21 day moving average is still below the 50 day moving average continuing the down signal.

The 100 day is falling which is bearish. The 200 day moving average is is turning sideways which is neutral.

The chart is still quite bearish. At present it is signaling investors should stay cautious as the morning could open higher but be followed by selling. A dip to or below the 200 day moving average looks likely.

Stock Market Outlook review of Fri Jan 28 2022

Stock Market Outlook: Technical Indicators Review:

Momentum: Momentum is rising and is negative. It is signaling the potential for a further rise on Monday but also a pullback could be possible.

• Settings: For momentum I use a 10 period when studying market direction.

MACD Histogram: MACD (Moving Averages Convergence / Divergence) issued a down signal on Thursday Jan 6. On Friday the down signal weakened but at minus 26.77 it is still concerning.

• Settings: For MACD Histogram, I am using the Fast Points set at 13, Slow Points at 26 and Smoothing at 9. 

Ultimate Oscillator: The Ultimate Oscillator is rising.

• Settings: The Ultimate Oscillator settings are: Period 1 is 5, Period 2 is 10, Period 3 is 15, Factor 1 is 4, Factor 2 is 2 and Factor 3 is 1. These are not the default settings but are the settings I use with the S&P 500 chart set for 1 to 3 months.

Slow Stochastic: The Slow Stochastic has a weak up signal. Despite Friday’s big jump, the technical readings still advise caution.

Settings: For the Slow Stochastic I use the K period of 14 and D period of 3. The Slow Stochastic tries to predict the market direction further out than just one day.

Relative Strength Index: The RSI signal is rising sharply but not yet strong enough to signal an all-clear.

• Settings: The relative strength index is set for a period of 5 which gives it 5 days of market movement to monitor.  It is often the first indicator to show an overbought or oversold signal.

Rate of Change: The rate of change signal is rising which indicates there could be some fairly strong price action on Monday, up or down.

• Settings: Rate Of Change is set for a 21 period. This indicator looks back 21 days and compares price action from the past to the present. With the Rate Of Change, prices are rising when signals are positive. Conversely, prices are falling when signals are negative. As an advance rises the Rate Of Change signal should also rise higher, otherwise the rally is suspect. A decline should see the Rate Of Change fall into negative signals. The more negative the signals the stronger the decline.

Support and Resistance Levels To Be Aware Of:

4800 is resistance

4725 is resistance

4700 is resistance

4670 is resistance

4655 is light support.

4600 is good support

4550 is light support

4525 is light support

4500 is support

4490 is light support

4475 is light support

4450 is support

4400 is good support and the 200 day moving average

4370 is light support

4350 is light support

4300 is good support

4290 is light support

4270 is light support

4250 is good support

4225 is light support

4200 is good support

 Stock Market Outlook for Tomorrow – Mon Jan 31 2022 

Friday’s bounce was long overdue. With the bounce out-of-the-way, the morning start looks promising but there are too many cautionary readings from the technical indicators to believe the rally will push the index still a lot higher on Monday.

Instead the signals are advising the morning start will be higher but selling and a test of at the very least of the 200 day is quite likely. A drop below the 200 day could occur. If the drop is on heavy volume this could break the rally started on Friday. Light volume in any selling though, would be bullish.

For now the outlook is cautionary. Friday investors get the January unemployment numbers. That is often the biggest market mover of the week. We could therefore see a drop on Monday, and then a move higher into the unemployment report for January on Friday. For now stay cautious and take profits. Setup stop-loss levels just in case the rally dies out on Monday, to protect profits made.

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